tv Bloomberg Markets Bloomberg January 14, 2022 1:30pm-2:00pm EST
it is set for 4:00 new york time, just his second formal solo press conference at the white house since taking office. he frequently gets shouted questions while traveling but recently has had structured interaction with journalists. the biden administration believes russia is laying the groundwork to justify an attack on ukraine. the u.s. believes russia is fabricating ukrainian provocations in social media and preparing potential sabotage operations. the plan would likely be set in motion if the policy with the u.s.-nato and key european nations fails. european nations reporting fewer than 100,000 coronavirus cases for the first time since late december. hospitalizations are also showing signs of decline in london and across the country.
that is raising hopes that the country is pass the worst of its omicron wave, and will likely that pandemic measures will be ease when they come up for review on january 26. president biden made his long-awaited announcement today for the nominations of three people for the federal reserve's board of governors. he has chosen sarah blumer asking to be the top banking regulator and completes his overhaul of leadership at the central bank. he has also chosen lisa cook, the first black woman to serve on the fed's board. the president nominated philip jefferson, and a former fed researcher. the nominees need to be confirmed by the u.s. senate. global news 24 hours a day, on-air, and on bloomberg quicktake, powered by more than 2700 journalists and analysts in over 120 countries. i'm mark crumpton. this is bloomberg. ♪
jon: i'm jon erlichman. welcome to bloomberg markets. matt: i'm matt miller. here are the top stories we are following for you around the world. u.s. retail sales dropped by the most in 10 months suggesting the passes inflation in decades is taking a greater call on -- tall on consumers. and as hong kong tries to maintain china's zero covid policy, chaos ensues at certain places. jp morgan and citi tumbling after posting a steeper the next big drop, coupled with a surprise jump in expenses to spook investors. all that and more, coming up. jon: the banking theme certainly alive and well when we look at the intraday averages after that 1.5 drop for the s&p yesterday.
you can see we are down again today. it looks like we will see our second losing week in a row. off to a rough start in 2022. that thinking may be that people are going after tech stocks, but some of those names have been faring better. there has been a lot of outperformance from energy. those are doing ok, but financials, not so much. that goes into the underperformance from some of the banks. the trading picture, loan picture, and some of the expenses. that feeds back into this inflation story we are talking about, today, seeing through the lens of retail sales. just to recap, the consumer showing signs of slowing. december retail sales slumping by the most in 10 months as inflation hits pocketbooks. if i had the matt miller palate,
expertise in style, i would be burning and even bigger hole in my pocket. matt: kind of you to say, but obviously, one of us is a style icon, and the other is bald. in terms of the consumer spending picture, we knew that the consumer would go out and buy for christmas. a lot of economists i'm talking to are saying that is what happened. consumers knew it would be difficult to get things in december, so they got them in november instead. on the other hand, the inflation component makes you wonder what has changed. we have a 7% higher cpi. a lot of people saying i'm not going to buy it right now, and that's a concern. jon: all great perspectives to discuss with our next guest, kim forrest of bokeh capital partners. we have been holding onto the roller coaster this year, trying
to see how the market would react to anything inflationary. should we have anticipated this kind of retail sales picture? kim: i think we should have, and it is because the two hardest hit areas are food and energy. four inflation. guess what, that is what the people by most often. they put gas in their tanks and they buy food to put gas in their stomachs. they are seeing prices rise higher and higher. i think what happened, at the end of the holiday buying season, people had bought in advance, and then they said enough, we have enough. it is not that kind of rush that happens in the last 10 days that really builds up christmas, and then there is after christmas trading. you turn in stock that you really didn't like, but you buy more stuff. i bet that didn't happen either. matt: i have a great chart that
i stumbled across on the terminal this morning. i will tell the viewers. take note. if you want to see it on the bloomberg terminal, this shows you where the inflation is coming from. you are right, food and energy are huge components, but goods inflation, which had been deflation over the past couple years, is really starting to take off. i think this goes back to 2017. how do you see inflation panning out in 2022? kim: i really think the food and energy, they are really commodities. it is not a lot of difference between one gallon of gas and another. those things can fall really rapidly. things like labor costs are not going to fall. but what they will do, hopefully, is they will stop
arising -- rising and we will get a new level of pricing. then probably some of those goods were bid up because of those shortages. it is disconcerting that a lot of that stuff still comes from offshore, those things that consumers buy every day or every month. the supply chain needs to get back in order. i see a tailing of the rate of inflation, but i cannot say that we are going back to the prices we had in 2018, 19, or even 20. jon: let's bring this back to the investor. it seemed like people were getting a handle on the idea, ok, inflation and higher interest rates will push toward certain sectors, financials, for example. then we step into earnings season on this friday and those stocks take a big hit.
how are you thinking about portfolio strategies these days? kim: i met opportunistic buyer. i also like to have long themes in my head that i like to play into. one thing that has always intrigued me is that technology is the only thing that gives you productivity, and it is delivered on semiconductors. that is my thesis in the smallest nutshell i can bring you. but i know that companies have had a very bad time in the past year, six months, getting employees. i don't care what kind of job you had, looking to fill, there are very few people out there that are willing to trade jobs and step into those jobs. businesses are going to have to look at their employees, figure out ways to give them productivity enhancing tools. that always means technology. for the next five years, buying
into semiconductors will be a winning strategy. they are no longer tied to gdp global growth. notice how many semiconductors there are in your consumer goods as well. that number is not going back. we want smart goods, smart employees, and semiconductors are the thing that allows that. matt: what kind of effect do you expect a fed rate increases to have on the economy? on the one hand, you hear about four increases. for this generation, that is a shocking statement. on the other hand, that only gets us up to 1% on the upper bound. kim: we don't really know where the number ends. i will say this. we are a global economy, we are
not just the united states. we have the reserve currency. we cannot get too far out of sync with the two other large areas, the eu and china. none of those areas are talking about any sort of quantitative tightening. in fact, china is adding more. i think the u.s. will be limited. if the 10-year hits 2 this year, it will drop back immediately. in the longer term, that speaks well for stocks. you will not be forced to accept lower multiples. jon: to tie that back to what you mentioned on semiconductor stocks, i guess you have to assume if you are bearish, for example, the rate of interest rates will go up, crimp earnings enough to justify the selloff that we have seen in technology stocks. that will be an interesting
dynamic to see play out in the markets. kim: exactly. in the long term, the market gets it right. in the short term, the market often overreacts. especially among some well priced semi names, they have been completely sold off because of fear and -- i don't know -- a 2.7% 10-year. matt: thanks for joining us. talking about the terminal rate. that is a fitting way to end it. kim forrest of bokeh capital partners talking about the retail numbers, the economy, and fed. bank earnings kickoff with jp morgan, citigroup, wells fargo. jp morgan down 6% right now. we will talk with david konrad. this is bloomberg. ♪
jon: this is bloomberg markets. i'm jon erlichman. along with matt miller. the big story we've been tracking, the wall street performance, our stock of the hour. taking a look at what is happening with jp morgan, wells fargo, citigroup. kriti gupta is joining us now. in some cases, these names are lower. kriti: going into earnings, they had some pretty high expectations. not only massive loan growth, but the rate hikes would boost stock and their bottom line.
top of that, trading revenue in the fourth quarter, where we saw the volatility spike, the opposite of what we heard. let me run through some of the highlights. jp morgan, not great when it comes to the expense management. they missed of the estimates, but revenue was up 28%. wells fargo beating expectations but they say their lending growth will accelerate next year. citigroup having an investment banking surprise. at the end of the day, not putting up those profits that the market was anticipating. matt: talking about the trading pressure the banks have seen, and the fallout that we are seeing in the stock market. for more, let's bring in david konrad, large-cap bank analyst at kbw, keefe bruyette & woods. they have the famed index as well. talk about how you see the earnings that we have seen so
far playing out. david: thanks for having me. in terms of earnings, they were certainly mixed. on the revenue side, it was relatively in-line. the issue, as you mentioned, the expectations and the outlook for a lot of the banks. that is where we saw the differences in the stock prices. for jp morgan, there are two big issues. one is on expense. the market was looking for $73 billion. their guidance was $77 billion. a big headwind from consensus on that standpoint. i would also point out the offsets. the bank trades, higher rates, and that plays through for jp morgan as well, but there is also a component of trading income that moves in the opposite direction of fed fund hikes which will peel back some of that asset sensitivity. we also expect trading to
moderate. we have been telling clients to move down to the regional bank plays to take better advantage of the higher rates. in many respects, we saw that with wells fargo today. jon: just to reiterate, the earnings picture may be poking a couple of holes into how big of a boost the banks would get in a higher interest rate environment, at least wall street players. the regionals, you say, you are watching for more upside on that front? david: jp morgan's outlook was driven by the trading which will not be a part of the regional outlook. when you think about wells, th eir nii kindness next year is well above the street, expenses were relatively in-line, so that is why you see that stock up. i would point to next week's
super regional earnings, maybe more so to wells fargo than the universal banks. matt: what do you think in terms of the loan growth that is now forecast? does that make sense to you, do you see rates changing at all? david: we are still bullish on the loan growth side, especially when you see the data coming through. jp morgan, they were slightly better than our expectations. 3.5% quarter over quarter, that was above our expectations. i thought wells was the big story, big inflection in loan growth. we had seen a declining balance sheet the last few years. the last quarter, some of the strongest in the group. 4% sequentially annualized, which will stack up well against everyone else. jon: we started the show talking about the inflation realities.
one of the factors with jp morgan were the expenses in the final quarter of the year. do you think that will be hearing more now that we rolled into earnings season, on higher costs associated to the business? david: i think we will. jp morgan may be an outlier because they are also heavily invested in the franchise. but when we look at bank of america's results, may not be similar magnitude, but the same theme. we are getting a lot of benefits, expected benefits from higher rates, but there will be a meaningful offset as we grow the expenses as well. jon: we appreciate your time as always. david konrad, large-cap bank analyst at kbw, talking about those bank earnings. hong kong leader carrie lam presses on with the city's zero covid strategy, extending restrictions into next month.
jon: this is bloomberg markets. i'm jon erlichman. along with matt miller. in an effort to curb the spread of the covid variant, carrie lam is pressing on with hong kong's zero covid strategy, extending flight bands until after the lunar new year. the focus of the olympics is quickly building. i'm sure every country around the world would like to have no covid, but a zero covid strategy introduces some key differences between china and the rest of the world. what can you tell us about that? >> a zero covid strategy when you are dealing with omicron,
which is 70 times more transmissible than delta, you have multiple chinese cities right now in some form of lockdown. six big cities. write ahead of the olympics. -- right ahead of the olympics. 20 million people in some form of lockdown. 1000 lights cancel between now and the start of the new year on february 1. and then of course, the nightmare is that omicron starts to appear in beijing ahead of the games. it is a nightmare for xi jinping, politically, socially, and economically. matt: in some ways, feels like it would have been better to get it all out of the way now and then not have it. i am looking forward, for example, to organizing a bowling night in two weeks when omicron has passed. the effects on the economy, we
are seeing them come through with manufacturers. volkswagen had to close production, toyota. airbus have to stop production. do we expect that to see that get worse and worse, and what can xi do about it? andrew: we are starting to see rolling quarantines, rolling travel restrictions right across factories, china. as you say, major car companies operating out of china. right now, holding the line is absolutely critical for xi on so many different levels. the first is, their vaccines are far less effective against omicron than mrna vaccines. they still use the traditional method. also, they have almost no natural immunity. their success, paying for the
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to repair or replace bridges across united states as part of infrastructure legislation passed by congress in november. the president says it is the largest investment in bridges since the creation of the interstate highway system, a project kickoff by legislation signed in 1956. new york city cannot be run remotely, that from the new mayor as he urged businesses to bring workers back and parents to send their kids to school. the city has been reporting a daily average of more than 25,000 covid-19 cases due to the surging omicron variant. hong kong's leader is promising to press on with the city's covid zero strategy. the chief executive is extending sweeping social distancing measures and flight bans until after the lunar new year break. hong kong has relied on some of the world's harshest border controls to deal